Microsoft Paying Novell $348 Million in Linux Deal

SEATTLE – Software maker Novell Corp. (NOVL) said on Tuesday Microsoft Corp. (MSFT) will make two separate up-front payments totaling $348 million to the company under an agreement to allow Novell's open-source Linux software to work with Windows.

Microsoft will pay Novell $240 million up front in subscription fees to allow the world's largest software maker to use its Linux software.

Last week, Microsoft and Novell entered a broad set of business and technological agreements to make their products work together better to serve corporate customers using both Linux and Windows computer servers.

Linux is the most popular variant of open-source software. Unlike proprietary software, open-source software lets developers share code and add functions, and users only pay for custom features, maintenance and technical support.

Microsoft agreed not to sign a similar agreement with any other Linux distributor for three years. Microsoft's pact with Novell dealt a blow to other Linux distributors such as market leader Red Hat Inc. (RHAT), according to analysts.

Under the pact, which will run until at least 2012, Novell will also pay Microsoft at least $40 million over five years for use of Microsoft's patents based on a percentage of its revenue from open-source products.

Microsoft also agreed to spend $12 million a year to market scenarios where users can virtually run Linux on Windows machines and vice versa.

Microsoft will also spend $34 million over the life of the agreement to put in place a sales force devoted to the combined offering, Novell said.